The Problem of Negatives Generated by the Commodity Technology Model in Input–Output Analysis: A Review of the Solutions

Abstract

Many economic models (e.g., computable general equilibrium models, econometric input-output models) revolve around a matrix of technical coefficients. However, these matrices can be estimated only once every 5 years as long as they are calculated from input-output tables and these are only published on a 5-year basis. Alternatively, use and make (or supply) tables are being regularly published on a yearly basis. However, they need to be converted into input-output tables as a previous step to form the matrix of technical coefficients. In doing so, this paper aims to shed light on the construction process of input-output tables and to guide economic modelers in making a decision on the way to make such conversion and how to deal with the subsequent problems, particularly with negative technical coefficients.

The Role of the Foreign Sector in the Spanish Bioeconomy: Two Approaches Based on SAM Linear Models

“…A symmetric matrix has the advantage of being easy to handle and suitable for macroeconomic analyses [ 36 , 37 ]. A product-byproduct matrix describes the quantities of products used to produce each product, regardless of the sector that generates them [ 38 ].…”

Shape of Wage-Profit Curves in Joint Production Systems: Evidence From the Supply and Use Tables of the Finnish Economy

“…negative elements in the input–output matrix. For a critical review of the various procedures proposed to overcome this inconsistency, see ten Raa and Rueda‐Cantuche (2005).…”

On the financial balance of input–output constructs: revisiting an axiomatic evaluation

“…Continued use of the ITC -despite its "economically unacceptable results" (Viet, 1994;United Nations, 1999)-is typically justified on practical rather than theoretical grounds: this construct can be directly applied to rectangular SUTs and never leads to negative coefficients, which may be difficult to interpret and distinguish from statistical discrepancies (Viet, 1994;Lenzen and Rueda-Cantuche, 2012;ten Raa and Rueda-Cantuche, 2013).…”

“…CTC is now widely acknowledged in practitioner guides (United Nations, 1999;European Commission, 2008), textbooks (Raa, 2006;ten Raa, 2009), and the scientific literature (e.g., Viet, 1994;Bohlin and Widell, 2006;Mariolis and Soklis, 2010; Rueda-Cantuche and ten Raa, 2009;Lenzen and Rueda-Cantuche, 2012;Sulaiman and Fadzil, 2013;ten Raa and Rueda-Cantuche, 2013). Continued use of the ITC -despite its "economically unacceptable results" (Viet, 1994;United Nations, 1999)-is typically justified on practical rather than theoretical grounds: this construct can be directly applied to rectangular SUTs and never leads to negative coefficients, which may be difficult to interpret and distinguish from statistical discrepancies (Viet, 1994;Lenzen and Rueda-Cantuche, 2012;ten Raa and Rueda-Cantuche, 2013).…”